We think the questions and concerns raised in our report remain unanswered. See our report at:

$FOUR's cursory 1-page response fails to address our critical points in any meaningful way, including questions around the withdrawal & rapid return of its deposit around FY end, the impact of capitalized residual commissions, and abrupt departure of its former CFO.

17/ Ultimately, we think that $FOUR is far less profitable, generates far less cash, and is dramatically more levered than investors are led to believe.

16/ In total, we estimate that $FOUR's accounting games and dubious M&A inflated ‘22 GP by 13% and EBITDA by 34%. And the cash games and M&A-fueled Q4 EBITDA beat conveniently occurred just prior to the CEO’s planned March ’23 sale of up to 2m shares.

13/ We question whether this lack of independent checks explains why $FOUR's coffers are used to fund the CEO’s private charter company, millions of dollars of commission payouts to a relative, inexplicable consulting fees to himself, and the promotion of his private space flight

15/ $FOUR ultimately reclassified customer acquisition costs as an operating cash item, but, we believe, simultaneously grew more aggressive elsewhere: it extended its D&A schedules by a weighted average 29%, which, we estimate, could inflate 2023 EBIT by 39%.

14/ In 2022, $FOUR received repeated pushback from the SEC over its capitalization of residual commission buyouts and customer acquisition costs, which, we estimate, inflate EBITDA by up to 36% annually.

11/ We think it’s misleading of him to claim to be a buyer when: - He hadn’t made any open-market purchases for months - Insider ownership filings reveal that he was a net seller during ’22 - He was due to offload up to 2m shares not long into the future under a VPF contract

12/ We think $FOUR's accounting gimmicks are enabled by a dismal corporate governance structure, including a board of directors and executive team replete with members of the CEO’s family, including his father and brother, as well as a number of childhood friends.

9/ Around the time this financial gimmickry was taking place, $FOUR's CFO abruptly left the day before the Q2 ’22 earnings call, and in the middle of responding to repeated SEC correspondence pushing back on its accounting.

10/ Meanwhile, the CEO has promoted the stock even as he’s been selling his stake. In Dec ’22 the CEO said $FOUR was “way too cheap” and that he’d consider taking it private. The stock predictably ripped.

8/ This front-loaded withdrawal, which was given an extremely opaque rationale in the filings, allowed $FOUR to turn what would have been a Q-o-Q operating cash flow contraction into a doubling of OCF simply by gaming bank deposits around the closing of books for the quarter.

7/ We also see $FOUR manipulating cash flow. In Dec. 2022, just before quarter-end Q4, $FOUR withdrew its $77m deposit from its customer settlements bank and booked it as operating cash flow, only to redeposit some of it after quarter-end in Jan. 2023, after the gain was booked

6/ Many of these resellers look like nonsensical takeout candidates, including small mom-and-pop businesses with limited IP. Their websites were antediluvian, and one was in arrears on its business filings. We see no reason for such M&A other than financial engineering.

5/ We estimate that, by bringing ~50% of its independent resellers in-house, $FOUR capitalizes ~20-25% of its annual COGS (ex-network fees) on a run-rate basis, increasing its pro-forma Adj. EBIDTA on paper by 30-35% without enhancing the earnings power of the business in any way

4/ $FOUR is coy about the magnitude of impact, and justifies the acquisitions on fundamental grounds. From filings, we estimate that the deals inflated Q4 ‘22 GP and EBITDA by 15% and 24%, respectively, and turned what would’ve been a $5.8m EBITDA miss into a $12.5m beat.

3/ In Q3 2022, $FOUR bought out 50% of its independent sales force of third-party distributors, thereby capitalizing the residual commissions owed to distributors and shifting one of its largest COGS line items into the cash flow statement, inflating GP and EBITDA.

2/ With the specter of a margin call hanging over the stock, we think $FOUR engaged in a string of highly aggressive accounting maneuvers which gave the appearance of enhanced gross profit, EBITDA, and cash flow without improving the underlying earnings power of the business.

1/ In March ’21, $FOUR's CEO posted 10m shares as collateral for his margin loan, when $FOUR was over $80. Yet as the stock fell, filings suggest that he experienced an effective margin call: he posted over 50% additional collateral to recapitalize the loan even as it was trimmed

We are short Shift4 $FOUR because we think its gross profit, EBITDA, and cash flow are inflated by hyper-aggressive maneuvers taken just as the decline in $FOUR’s share price created the threat of a margin call on its CEO’s equity-backed loan. Report at:

@WallStCynic @FrankPartnoy @YaleSOM Such an underrated book.